Normal Modified Stable Processes

Neil Shephard (shephard@fas.harvard.edu), Ole Barndorff-Nielsen and University of Aarhus

No 72, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: This paper discusses two classes of distributions, and stochastic processes derived from them: modified stable (MS) laws and normal modified stable (NMS) laws. This extends corresponding results for the generalised inverse Gaussian (GIG) and generalised hyperbolic (GH) or normal generalised inverse Gaussian (NGIG) laws. The wider framework thus established provides, in particular, for added flexibility in the modelling of the dynamics of financial time series, of importance especially as regards OU based stochastic volatility models for equities. In the special case of the tempered stable OU process an exact option pricing formula can be found, extending previous results based on the inverse Gaussian and gamma distributions.

Keywords: lévy process; inverse Gaussian; OU process; stable; stochastic volatility; subordination; tempered stable (search for similar items in EconPapers)
JEL-codes: C32 G12 (search for similar items in EconPapers)
Date: 2001-07-01
References: View complete reference list from CitEc
Citations: View citations in EconPapers (43)

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